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Ethiopia Markets and Cash Transfers in Ethiopia

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Ethiopia Markets and Cash Transfers in Ethiopia Markets and Page | 1 cash transfers inEthiopia Ethiopia: insights from an initial assessment. January 2013 Data collected in October 2012 Executive Summary In line with the government’s ‘cash first’ policy for social transfers, the World Food Programme (WFP) is preparing the introduction of cash or voucher transfers in Ethiopia. This market assessment offers considerations that inform the design of such interventions for WFP. The report relies on secondary data analysis, consultations with WFP partners and a primary data collection exercise that Page | 2 covered 17 markets of Amhara, Somali and Tigray regions in October 2012. In Ethiopia, years of double-digit GDP expansion, and strong demographic growth adding some 2m people to the population each year, are supporting an increase in aggregate domestic food demand. Although the country is self-sufficient for many staples, domestic food production is struggling to keep up with buoyant demand, making imports of wheat, vegetable oil and sugar necessary. Persistent food inflation – which has made nominal food prices triple since 2007 - has at times prompted authorities to restrict trade in cereals, or to set price ceilings on selected commodities. Cash or voucher transfer programs would therefore be implemented in a context of buoyant prices and dynamic macroeconomic conditions. Economic analysis confirms that cash or voucher transfers usually constitute a cost-efficient transfer mechanism in Ethiopia, compared to in-kind food aid. However substantial seasonal changes in local food prices, exchange rate variations and volatile international market conditions have a strong bearing on the cost efficiency of cash or voucher transfers. Market integration - a necessary condition for the implementation of cash or voucher transfers at scale - is stronger for maize than for wheat. Average price correlations reach 0.6 for maize, against 0.4 for wheat, on 34 markets monitored by WFP. Although there is evidence of strong market integration in Oromiya and Dire Dawa, in Amhara and the Southern Nations Nationalities and People’s (SNNP) region for maize, and for wheat in Tigray; whereas lower levels of food market integration in Afar, Gambella and in more remote sections of other regions argue against large-scale cash or voucher transfers in those areas. Primary data shows that markets that are either ‘large’ (with weekly transactions exceeding 500 tons of grain) or where maize or imported rice is the dominant commodity are most likely to react well to cash transfers. Although it has long been considered off-limits to cash transfers, the northern tier of Somali region is found to have characteristics supportive of cash transfers due to strong links to international markets. In order to enhance market response to cash transfers, WFP will consider ways of overcoming the constraints that traders face, such as access to working capital, restrictions on storage, and quotas on imports. Looking ahead, WFP’s approach to cash or voucher programming will be flexible, and will provide for adaptations as market conditions change. In-kind food transfers could continue to be a complement to cash transfers at times of the year when stocks are low, during poor years or in areas where markets remain insufficiently developed. Close monitoring of the dynamic economic conditions at play in Ethiopia will be necessary. Consideration will be given to engaging in policy advocacy with the government on measures that could affect market’s capacity to accommodate cash or voucher transfers. As the methodology used in this report falls short of offering a detailed local analysis of market functionality, WFP will carry out further in-depth localized analysis of market conditions in the country, with reference to the broad criteria this report has identified. Acknowledgements This report was written by Jean-Martin Bauer (WFP Rome), Aschalew Feleke, and Kedir Shemsu (WFP Ethiopia). The WFP sub-offices of Mekele, Desse, Jijiga, Kebri Dahar, Gode, and Degahabur supported data collection. The authors acknowledge the research assistance of Filipo Pompili and Francesco Slaviero. Remaining errors and omissions are the authors’ own. Page | 3 Acronyms CFSAM: Crop and Food Assessment Mission CPI: Consumer Price Index CSA: Central Statistics Agency DRMFSS: Disaster Risk Management and Food Security S FAO: Food and Agriculture Organization FOB: Free on Board EGTE: Ethiopian Grain Trading Enterprise ETB: Ethiopian Birr GDP: Gross Domestic Product PSNP: Productive Safety Net Programme SNPPR: Southern Nationalities and Peoples’ Region USDA: United States Department of Agriculture USAID: United States Agency for International Development USD: United States dollar WFP: World Food Programme © United Nations World Food Programme, 2012 Contents Executive Summary ................................................................................................................................. 2 Acknowledgements ................................................................................................................................. 3 Acronyms ................................................................................................................................................ 3 Page | 4 List of Tables and Figures ........................................................................................................................ 5 1-Background and scope ......................................................................................................................... 6 1.1 Rationale and objectives ......................................................................................................... 6 1.2 Methodology ........................................................................................................................... 6 2. A Dynamic Market Environment ......................................................................................................... 9 2.1 Robust economic growth is fuelling aggregate food demand ...................................................... 9 2.3 Government policies aim to keep food prices low ..................................................................... 12 3. Market integration ............................................................................................................................ 13 3.1 Price correlations indicate a higher level of integration for maize than wheat ......................... 13 3.2 Somali myths ............................................................................................................................... 14 4. Cost efficiency of food and cash transfers ........................................................................................ 18 5. Market response capacity ................................................................................................................. 21 5.1 Message 1 – market response capacity is subject to large seasonal swings .............................. 21 5.2 Message 2 – Larger markets trading in maize and rice will better absorb demand increases than smaller ones trading in sorghum and wheat. ........................................................................... 22 5.3 Message 3 – Low capital could limit traders’ capacity to respond to higher demand ............... 25 5.4 Message 4 –Demand from beneficiaries may differ from the WFP food basket ....................... 26 5.5 Message 5 - Engage with the Government on food policies affecting market response to cash or voucher transfers .......................................................................................................................... 26 6. Recommendations ............................................................................................................................ 28 6. 1 Information gaps ........................................................................................................................ 28 6.2 Conclusions and recommendations ............................................................................................ 28 References ............................................................................................................................................ 30 Annexes ................................................................................................................................................. 32 List of Tables and Figures Table 1: Markets visited for primary data collection .............................................................................. 7 Table 2: selected macroeconomic indicators ......................................................................................... 9 Table 3: annual in kind food aid and licensed import volumes in somali region.................................. 17 Table 4: changes in volumes from peak to trough ............................................................................... 21 Page | 5 Table 5: seasonal variation in resupply times ....................................................................................... 22 Table 6: main constraints for traders .................................................................................................... 25 Figure 1: trends in consumption and production of barley, maize, sorghum and wheat 2003-2011. 10 Figure 2: per capita starch supply, 2005-2009. in kg/year. .................................................................. 33 Figure 3: Imports as a share of domestic supply, wheat, vegetable oil and sugar, 2005-2009 ...........
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